Shortly before becoming San Jose mayor in January, Chuck Reed retained his longtime political adviser on a $39,000 city contract to write speeches, handle media relationsand otherwise help out. Since then, adviser Vic Ajlouny also has been running – for free – the city council campaign of Hon Lien, whom Reed hand-picked to vie for his former council seat.

Ajlouny says he’s been volunteering his services to Lien because he likes and believes in her.

But because his consulting contract with the mayor’s office doesn’t require him to log his hours serving the city, some observers are wondering whether taxpayer dollars are being used to secretly fund a political campaign.

Reed and Ajlouny strongly deny there’s anything wrong with the arrangement, which began in December and, after two extensions, runs through June 15.

“Victor is a part-time contractor,” says Reed, who swept into office on a pledge to clean up City Hall and has known Ajlouny for more than two decades. “What he does with his free time is up to him.”

But the arrangement appears to blur the line between politics and government and has raised concerns about whether Ajlouny’s connections to Reed give Lien special access to the mayor’s office.

“I think from the public’s perspective, it is troubling to have an individual who is a contract employee for the mayor of a city to be at the same time engaged in a political campaign in the same city,’ said Judy Nadler, a former Santa Clara mayor who is now senior fellow in government ethics at the Markkula Center for Applied Ethics at Santa Clara University.

Reed has faced questions before about his use of public funds. During last year’s mayoral race, he apologized for using money from his council office account to pay for advertising in community publications and for memberships and donations to scores of community organizations. He reimbursed the city $39,035.

Ajlouny, who worked on both Reed’s city council campaigns and his mayoral run, said he had no problem with the dual role.

“How I volunteer my time, whether it is helping a non-profit or anything, is my business,” Ajlouny said.

The veteran consultant, who lived in District 4 for 15 years before moving to Nebraska in 1996, said he decided to support Lien because “I felt she was the best.” He suggested that Reed endorse Lien after the mayor asked him to vet candidates for the seat.

Ajlouny says he spent up to 50 hours a week helping Reed after Reed first took office. But he said his time devoted to the mayor has slowed down, in part because Reed recently hired a spokeswoman..

Ajlouny says he spends about 18 hours a week masterminding Lien’s campaign, working with her paid campaign manager.

Lien said Ajlouny brings experience and has been an important part of the campaign. “His role is to advise me on the things I need,” she said.

Reed, whose no-nonsense style has earned him respect across the political spectrum, caused a stir when he endorsed Lien for the District 4 race. His backing of Lien, a political novice who has been criticized for her lack of knowledge of city issues, has puzzled some district residents and members of the political establishment.

Reed has a lot riding on the race. If Lien gets in, she will be instrumental in helping the mayor build a majority voting bloc on the council. But his decision to keep Ajlouny on staff has opened the door for his critics.

“We have concerns about how public funds are used, and they shouldn’t be used to fund campaigns,” said Phaedra Ellis-Lamkins, executive director of the South Bay Labor Council. Reed has frequently clashed with the labor group, which has endorsed Lien’s opponent in Tuesday’s runoff, Kansen Chu.

Chu and Lien emerged as the top two contenders for the council seat after a primary March 6 – the same day Ajlouny signed papers extending his contract with Reed, which originally was intended to last through January.

Reed said the contract was extended because he took longer than expected to hire a spokesperson and other staffers; the deal was extended again in May, although Ajlouny is only permitted to bill for services he provided through May 15.

Ajlouny’s contract outlines broad duties and responsibilities, including communityoutreach and providing advice and consultation to Reed and other senior staff. A phone call between him and Ajlouny might qualify as advising the mayor, Reed said.

But as he collects checks from the city, Ajlouny also is waging an aggressive campaign on Lien’s behalf.

Reed said he is not concerned about what his friend does privately.

But the don’t-ask, don’t-tell policy doesn’t sit well with some.

“We never hired consultants. I am not aware of any mayoral office that has done so in the past,” said Jude Barry, chief of staff to former mayor Ron Gonzales from 1998 to 2000. “It can be confusing or a potential problem if someone is wearing two hats simultaneously – one that says mayoral staffer and one that says campaign consultant.”

The agency’s hiring surge is only for half of the funds generated under SB 1; the other half is going to cities and counties for transportation improvements projects, which are also expected to generate new jobs.